2014

Abstract: We consider a committee with common interests. Committee members do not know which of two alternatives is the best, but each member may acquire privately a costly signal before casting a vote under either majority or unanimity rule. In the lab, as predicted by Bayesian equilibrium, voters are more likely to acquire information under majority rule, and attempt to counter the bias built in favor of one alternative under unanimity rule. As opposed to Bayesian equilibrium predictions, however, some committee members vote for either alternative when uninformed. Moreover, uninformed voting is correlated with a lower disposition to acquire information. We show that an equilibrium model of subjective prior beliefs may account for this correlation, and provides a good fit for the observed patterns of behavior both in terms of rational ignorance and biases.

Abstract: We study the relation between credit conditions, misallocation of resources, and total factor productivity (TFP) using sectoral data from Mexican manufacturing industries between 2003 and 2010. Our analysis uses a theory-based framework to account for TFP changes in the Mexican manufacturing sector due to changes in distortions in the use of capital, labor and intermediates arising from financial frictions. We find empirically that these distortions account for a large fraction of aggregate TFP changes in the period. We also show that changes in distortions in the data are statistically related to changes in the availability and the cost of credit. Taken together, the results suggest a connection between credit conditions and productivity at the sectoral level, channeled through the choice of the inputs mix by arms. Moreover, our analysis suggests that the reallocation of credit from distorted sectors to undistorted sectors is as important as the overall credit availability to explain TFP growth, especially during the recovery after the crisis.

Abstract: We survey and synthesize the political economy literature on dynamic elections in the two traditional settings, spatial preferences and rent-seeking, under perfect and imperfect monitoring of politicians’ actions. We define the notion of stationary electoral equilibrium, which encompasses previous approaches to equilibrium in dynamic elections since the pioneering work of Barro (1973), Ferejohn (1986), and Banks and Sundaram (1998). We show that repeated elections mitigate the commitment problems of both politicians and voters, so that a responsive democracy result holds in a variety of circumstances; thus, elections can serve as mechanisms of accountability that successfully align the incentives of politicians with those of voters. In the presence of term limits, however, the possibilities for responsiveness are limited. We also touch on related applied work, and we point to areas for fruitful future research, including the connection between dynamic models of politics and dynamic models of the economy.

Abstract: In the last two decades, the Peruvian economy exhibited rapid growth. Moreover, the composition of the labor force improved in terms of education and experience, two variables which are typically associated to higher human capital. The average worker in 2012 had a higher level of education and was one and a half years older than in 1998, re‡ecting the impact of the demographic transition. However, the average real wage was roughly constant. We show that a decline in the wage premium for education, and to a minor extent for experience, is responsible for the lack of growth in the average real wage. Had these two premia remained constant throughout the period of analysis, average labor earnings would have increased by about 2.6 percent per year, of which 0.7 percentage points are accounted for the changes in the composition of the labor force in terms of age and education. We explore the role of the relative supply of workers with di¤erent levels of human capital as an explanation for the decline in the wage premium for education. Finally, we analyze the implications of these …ndings for some macroeconomic variables, as earnings and wage inequality, the labor share and total factor productivity.

Abstract: We are first paper to study the economic effects of drug-trafficking organization violence. We exploit the manyfold increase in homicides in 2008-2011 in Mexico resulting from its war on organized drug traffickers to estimate the effect of drug-related homicides on house prices. We use an unusually rich dataset that provides national coverage on house prices and homicides and exploit within-municipality variations. We find that the impact of violence on housing prices is borne entirely by the poor sectors of the population. An increase in homicides equivalent to one standard deviation leads to a 3% decrease in the price of low-income housing. In spite of this large burden on the poor, the willingness to pay in order to reverse the increase in drug-related crime is not high. We estimate it to be approximately 0.1% of Mexico’s GDP.

Abstract: We study how consumers allocate debt across credit cards they already hold using new data on credit card activity for a representative sample of consumers with two homogeneous cards in Mexico. We nd that relative prices are a very weak predictor of the allocation of debt, purchases, and payments. On average, consumers pay 31% above their minimum nancing cost. Evidence on cross-card debt elasticities with respect to interest rates and credit limits show no substitution in the price margin. Our ndings oer evidence against the cost-minimizing hypothesis, provide support to behavioral explanations, and have important implications for pricing and competition.

Abstract: Consumer protection in financial markets in the form of information disclosure is high on governments agendas, despite the fact that the empirical evidence on its effectiveness is scarce. To measure the impact of Truth-in-Lending-Act-type disclosures on default and indebtedness, as well as of debiasing warning messages and social comparison information, we implement a randomized control trial in the credit card market for a large population of indebted cardholders. We find that providing salient interest rate disclosures has no effect, while social comparisons and debiasing messages have only a odest effect. Other types of disclosures discussed in the paper could have larger effects. Keywords: Credit cards, information disclosure, truth in lending, Mexico.